Startup Challenger Banks with Small Business Focus

UK challenger, OakNorth become a financial services “unicorn” in its Nov. 2017 funding round

In the digital age, few startup banks have gained meaningful market share in what matters, revenue and profits. In the United States, only two large bank-like companies (see note 1) have emerged from 20 years of digital disruption: PayPal and Square.  There are also a handful of new online lenders that have amassed significant scale (SoFi, Lending Club, Prosper, Kabbage, Avant, On Deck).

There are still zero consumer banks started in the past 20 years that have broken the top-100 list. The possible exception was ING Direct. But as part of a large bank, it’s a stretch to call it a startup (see note 2). BofI Holdings, the public company that owns Bank of Internet, is the largest pure digital bank with $8B in assets and ranking 151 in this list posted by MX.

Why so few successes? It’s difficult for a startup bank to gain scale. First, the market is absolutely saturated. Every bankable consumer in the USA can choose from: (1) big trusted brands with a large branch networks and sophisticated digital services; (2) small community banks with deep ties to their communities (and serviceable digital banking); (3) or equally small non-profit credit unions providing bargain priced loans and deposits (and often with above average digital banking).

Second, to be successful, startups must solve a problem much better than the incumbents. For most consumers banking digitally simply is not a problem. The exceptions were in remote payments, which PayPal solved, and micro-businesses merchant accounts, which Square solved. That’s why it will likely continue to be tough for new deposit-focused banks to become big players, at least in the United States.

But there are many niches for banking startups to mine and one of the most promising is small business banking. A startup bank that solves bookkeeping and financial management problems for small businesses can be the next Square.

Here are some of the bigger efforts around the world (note 3):




Rest of world

  • Holvi – Finland, acquired by BBVA March 2016, Finovate alum
  • Tochka – Russia

Author: Jim Bruene (@netbanker) is Founder & Advisor at Finovate as well as Principal of BUX Certified, a financial services user-experience accreditation program. 


  1. You can argue they are not banks, but they provide key consumer banking services, payments and credit, so I’m going to call them banks for the purposes of this post. I’m also excluding the crypto market, since it’s too soon to call the major players “bank like” though I think they are well on that path.
  2. I would probably add ING Direct to this list. Although they were technically not a startup, they built a significant deposit business from scratch, eventually selling for $9B to Capital One during the Great Recession.
  3. To make this list, the startup bank must be solely focused on small businesses and must offer, or plan to offer, a debit card to access funds held on deposit at the startup.

Startup Watch: Qonto Launching European Direct Business Bank out of Paris

qonto home

When it comes to startups, it seems that consumer services get all the attention, while the enterprise plays get the revenue. Or so Qonto hopes as they target business customers for their new direct bank opening in second quarter. The Paris-based startup (with an .eu web address) is targeting business with their more intensive expense-tracking needs and promises “easy business banking,” a compelling slogan.

The startup is not technically a bank, chartered under the French payments company regulations, but it offers debit cards, current accounts, and international transfers. The only big thing missing are commercial loans, and no doubt those are on the product roadmap, once they get some traction on the expense management side.

Qonto is currently concentrating on the front-end customer experience, off loading the nuts and bolts of payments to Treezor, a French white-label payments provider. Treezor is able to provide instant MasterCard numbers to Qonto customers, with the plastic arriving within 5 days. That helps get the new business customer onboarded immediately, a great first impression.

A few Finovate alums are pursuing this market, but none in France.

The company was in the news last week with their first fundraising, snagging $1.7 million from Alven Capital and Peter Thiel’s Valar Ventures, which also invested in N26 and TransferWise.

Bottom line: Supplying businesses, even smaller ones, is a lucrative proposition. They are not as price sensitive as they appear, because few owners have the time or patience to shop for banking services. Once they settle on a provider, you have a good chance of keeping them for the life of their business, IF you can meet their needs as they grow, especially credit. And startups are uniquely positioned to appeal to small business customers, because as a small biz themselves, they understand the customer like no large bank can.

Giving Customers Credit

declined_plateOne of the most frustrating aspects of modern day borrowing, especially in the heavily securitized U.S. home loan market, is the price you pay for not being “normal.”  I faced this for more than two decades as a business owner. Even with a 20-year track record in business and great personal credit scores, without that regular paycheck and W-2 documentation, it was maddeningly hard to get a new mortgage, refi, or even a car loan or credit card sometimes.

But having worked on the other side, I understand that certain groups, such as small business owners, pose higher risk. So it’s understandable that underwriting, pricing, and documentation requirements for new customers are more onerous. The extra paperwork may be frustrating, but business owners understand risk vs. return, and can come to terms with it.

However, there is another situation that makes customers pull out their hair, rant on social media, and tell their friends to avoid that bank. It’s when you’ve been a customer for years, even decades, but your lender decides you should be in a higher-risk group, even though you’ve done nothing risky. There is a classic example of this in the Wall Street Journal today. It tells the tale of a Seattle couple who are renting a cottage behind their primary residence in a completely legal and transparent way. And when they mentioned this seemingly great $30,000 improvement to their income in a home-equity loan-refi app, their bank, one of the largest in the United States, promptly turned them away saying it didn’t offer home-equity loans on properties with home-based businesses.

Certainly, the bank can make the business decision not to lend to any category where it doesn’t like the overall risk vs. return. But their underwriting should be flexible enough to look at an existing loan that’s in good standing, and realize that if the borrower is pulling in an extra $30,000 from AirBnB, the default risk on that loan has been lowered.

umpqua logoThe bank isn’t commenting on this particular loan application, so we don’t know if there are other extenuating circumstances. Perhaps the couple had a debt go into collection or other credit problems. But since I’ve personally run into similar problems while maintaining excellent credit, I believe the couple’s story is probably accurate.

Bottom line: One bank’s loss is often another’s gain. This story had a happy ending as the couple was able to refinance through super community bank Umpqua. Now that its win has been immortalized by the national press, expect Umpqua to feature this story throughout its market.

Bank VC Files: Building the “Credit Karma for Small Biz”

Nav dashboard monitors both personal and business credit

We are huge fans of strategic investing by financial institutions, especially in lower dollar amounts, what we call strategic seed investing. It’s the ultimate win-win in business. NewCo gets capital, credibility and adult supervision on the board. OldCo gets inside access to experiment after experiment in its core market without risk of sullying its billion-dollar brand. That’s why we’ve seen a dramatic rise in venture investing by large financial institutions in the past 18 to 24 months.

The best place to find new strategic investments? Our quarterly Finovate events around the globe (of course). But to help you narrow down the possibilities from our 857 alums, we try to highlight promising areas here from time to time.

Today, we look at risk-evaluation services targeted to small- and mid-sized businesses (SMB), also known as business credit scores.

Given the massive businesses built on the back of consumer credit scoring—Experian, Equifax, TransUnion, Credit Karma, Intersections, and all the mid-size credit score retailers—it comes as no surprise that these same players, along with a few startups, are targeting SMBs.

We’ve seen a number of alt-credit-score plays at Finovate (Aire, EFL, xxxxx) but only one was focused exclusively on small-business credit scoring:

  • cortera_logoCortera: The company appeared at Finovate in May 2010 (FS10 video). Ten months later, it landed $50 million in private equity funding for a total of $60.7 million raised. Earlier this year, the company picked up an additional round of growth debt, but the amount was not disclosed. Two strategic FI investors were involved in its 2008 $8 million Series A: CIBC and Fidelity.

The big three

  • Dun & Bradstreet: The company that created the industry sells reports from $60 to $150 each or $188 annually per company tracked.
  • Experian provides a number of business credit evaluation reports in the $40 to $50 price range each or on subscription basis for $150 annually (per company followed).
  • Equifax provides similar information for $100+ per report, or $20 per month per company tracked.

The new startup: Nav
Since Cortera does not appear to be in fundraising mode, and the big three are all major companies, banks should look at newer players. One that seems promising, and is currently raising $12 million (at a $65 million valuation), is Nav (formerly Creditera).

Nav is geared to SMB owners for monitoring their own company. It is not currently offering services for evaluation of other companies, the bread-and-butter of D&B and others. Nav’s service combines personal and business credit scores, essential for small-to-medium businesses, for $30 to $50/mo. It’s a single source to get reports across five sources—D&B, Experian, Equifax, Transunion, and FICO. The company also offers a freemium option, with free access to summary data from two sources free of charge and obligation (with no credit card required).

Nav also runs a commercial lending marketplace where owners can look for business credit cards, loans and other financing from Nav-affiliated lenders.

San Mateo, California-based Nav was founded in 2012 and raised a $6.5-million Series A led by Kleiner Perkins in Nov 2014. The company was founded by Levi King, who previously co-founded alt-lender and 2011 Finovate alum Lendio.

Investing in the business risk-evaluation space

Why banks should be interested in the space:

  • Business owners seeking their company’s credit report may be in the market for financing
  • Business (and personal) credit reports is a potentially lucrative, fee-based business
  • Business credit score monitoring is a valuable entry-level service to begin a banking/credit relationship, especially if owners are drawn to the site multiple times each year
  • Understanding of the needs of small businesses will help any FI looking to grow its small-biz services
  • The freemium model could be a great value-add for business checking accounts
  • The free service could be a good draw to the bank’s website


Small-business Banking Strategies: Providing Peace of Mind (for a Fee)


Business owners are optimists. It’s a job requirement. So whether or not a small business is currently seeking capital, most hope to grow down the road, so the POTENTIAL to tap more funding is a huge factor when selecting a bank. It’s why small businesses have long sought to establish quality relationships with community banks or larger FIs.

But in the aftermath of the 2008-to-2012 downturn and all the negative press about the “credit crunch” (both real and imagined), business owners are less confident that their bank will come through for them when they need it. That’s why banks should offer credit to ALL small- and micro-business customers. It doesn’t have to be a large amount, or free of fees, or at an APR that would make the CFPB happy (it’s commercial credit we are talking about). FIs just need to demonstrate they have their client’s back.

small_bus_bank_iconAlong the same lines, most banks could do better providing peace of mind. The most important factors are transaction/payment reliability, service quality and, probably most important these days, security. Again, it’s about the peace of mind knowing that your bank will run your account flawlessly while keeping thieves at bay. And failing that, reimburse the losses without a business disruption.

These things cost money. But the good news is that businesses understand that and will pay for it. Most growing businesses are price-insensitive when it comes to their transactional bank account. It’s just not a material expense, especially if you factor switching costs. In fact, I have long stated that I’d be happy to pay $500/mo for a business banking account with my ideal mix of banking, security and accounting services.

That said, it won’t be easy to get to three-figure monthly fees for SMB banking. Here’s a more normal example, a fictional starter business bank account priced at $50 to $60/month ($10/mo less if paperless):

  • Checking account/debit card
  • Small-biz-branded mobile-banking app
  • Security and transaction alerts
  • Outbound payments (billpay, P2P, mPay, ACH)
  • Inbound payments (ACH, P2P, cards, mPOS)
  • Bundled credit facility (line of credit and/or credit card) with overdraft protection
  • $10/mo discount to go paperless (no paper checks, no paper statements, no in-branch deposits)
  • Credit score with alerts (sourced through Credit Karma)
  • Account scanning for fraud and questionable charges (sourced through BillGuard)
  • Loan concierge to help the business find funding (via alt-lenders if needed)
  • Basic accounting/money-management tools (outsourced to Mint, FreshBooks, Expensify, etc.)
  • Commercial eBanker (email night and day with same person if possible)
  • Fraud-loss guarantee for first $5,000, then $x/mo per $10,000
  • Multifactor security using mobile phone/GPS
  • Basic business property insurance for first $5,000, then $y/mo per $10,000
Graphic from alt-lender Kabbage


Xero & TransferWise Team Up to Save SMBs on Foreign Currency Exchange Fees


Two Finovate alums partnered today to make it easier for small and medium businesses to conduct business abroad.

Xero’s small business users based in the U.S. and U.K. can use the TransferWise add-on to pay invoices in 25 currencies to 46 countries.

When small businesses use the new add-on to send funds from Xero, they avoid bank-commission fees and instead pay TransferWise’s rate (up to 0.5%). Here’s how it works for existing Xero customers:

XeroTransferWiseLogos1) Log into TransferWise to view their outstanding foreign-currency invoices

2) Select the invoice to be paid

3) The rate is locked in for 24 hours, during which time the user must pay the invoice on the TransferWise platform using a debit card or bank transfer

After the payment arrives, the invoice is reconciled on Xero.

New Zealand-based Xero most recently presented at FinDEVr 2014 in San Francisco. The company launched its Business Identification product at FinovateSpring 2011.

London-based TransferWise demonstrated at FinovateEurope 2013 in London.

CAN Capital Locks in $650 Million Credit Facility


Alternative small business loan provider CAN Capital announced this week that it secured a $650 million credit facility from twelve banks. Seven are first-time participants:

  • Wells Fargo Capital Finance
  • Morgan Stanley
  • Barclays
  • UBS
  • J.P. Morgan
  • SunTrust Bank
  • First Tennessee Bank

Five existing banks recommitted funds:

  • Fifth Third Bank*
  • Regions Bank*
  • AloStar Bank of Commerce*
  • CapitalSource (a division of Pacific Western Bank)
  • Amalgamated Bank

*increased commitments

CAN Capital provides loans and merchant cash-advances to small- and medium-sized businesses. Since launching in 1998, the company has extended a total of 150,000 finance transactions to small businesses, providing access to $5 billion.


The New York-based company is best known for its Daily Remittance Platform. The underwriting technology evaluates business risk based on recent performance, which generally enables it to approve financing for more businesses.

CAN Capital debuted its Mobile Funder on the FinovateFall 2013 stage in New York.

Winning Checking/Deposits from Established Small Businesses

imageI was asked recently what it would take for me to move my business deposit relationship. My immediate answer: “There is nothing you could do to get me to move.”

We have changed banks only once in our 20-year history, moving to Washington Mutual (now Chase) in 2007 in order to get a better line of credit (which ironically, was never granted, as WaMu was about to go into a death spiral).

We’ve been happy with Chase for the most part, and now have so many services and payees connected to it, that I can’t imagine going through the headache of changing. Even if another bank or CU offered a fee-free account that matched Chase feature for feature, it’s just not worth the considerable investment in time and energy to switch.  

But a few minutes later I changed my mind. Yes, there is one thing that would make me move my entire business account. And it’s so basic that it seems ridiculous that I’d even have to ask for it.

It’s the one thing that Chase, or any bank that I know of, isn’t currently delivering to small business owners:

Guaranteed safety of our funds against all fraud/theft

Chase has state-of-the-art security as far as I can tell (e.g., two-factor authentication for all the risky moves). And we’ve never had a problem. However, every time I read about some nonprofit or small business having their account drained after a successful key-logging attack, I get that queasy feeling.

And I’m not even asking for the fraud guarantee to be free. I’d be more than willing to pay for it. How about $25/month for the first $100,000 covered, then $10 to $15 per $100,000 thereafter? That should be enough to make it a decent profit center for the bank and I could sleep better (note 1). A win-win.


1. Two years ago, I was encouraged by the new offering from EFTGuard (see post). They were offering coverage of $100,000 per account up to $500,000 total per customer. Insured customers were required to use fraud-monitoring software from Trusteer, Iron Key or Webroot. The price was $25/mo to the end-user with $10 of that pocketed by the bank distribution partner. But I haven’t run across any banks currently offering it.

New Online Banking Report Published: Digital Small Business Banking


There is no other issue that ignites our passion like the lack of attention paid to small- and micro-businesses by many mainstream banks. With more than 20-million small businesses, 1 in 5 U.S. households owns a small business. And that doesn’t even count all the independent sales reps and part-time contractors that need help managing their more complicated finances.

There are many reasons why the smallest businesses continue to fly under the radar: smaller balances, more complex needs, widely varying expertise, challenging underwriting issues and so on. Traditionally, this segment has been difficult to serve cost-effectively.

But with technology readily available to monitor daily financial performance, respond to service requests via email, outsource credit via crowdfunding and alt-lending (see note 1), and customize online banking services, the “it’s too expensive” excuse is less and less believable.

That said, it’s not easy determining how best to serve the varying needs of the elusive microbusiness segment. In this report, our sixth deep-dive (see note 2) into serving small biz online (and now mobile too), we outline what to look for and how best to get started.


About the report

Digital Small- and Micro-Business Banking (link)
How to use mobile and online services to capture more share in this huge market

Author: Ray Graber, Graber Associates

Editor: Jim Bruene, Editor & Founder

Published: 12 Dec 2013

Length: 32 pages, 7,500 words, 6 tables

Cost: No extra charge to OBR subscribers, US$395 for others (here)

Companies mentioned: Alabama Credit Union, American Airlines CU, American Express, Aptys, Bank of America, Bank of Montreal, Bank of New Zealand, Barclays (UK), BBVA Compass, BCSG, California Bank, CAN Capital, Columbia Bank, Deluxe, FirstData, Frost Bank, iBank, Illinois National Bank, Luminous, MB Financial, Mitek, Mineral Tree, P2B Investor, PNC Bank, SaaS Markets, Square, Swift Capital, The Receivables Exchange, Vancity, Vantiv, VerifyValid, Webster Bank, Yodlee


1. Crowdfunding/P2P lending may well be an area that finally begins to impact traditional banking revenues. But that’s still a ways away. See our May 2013 report for more info (subscription).
2. Buyers of this report will also receive a free copy of our previous Small Business Report (OBR 172/173) published in 2009. It contains additional material still valid for today’s strategists and small-biz product managers.

Launching: Zazma Offers Drop-Dead Simple Short-term Business Credit

image To continue our look at outstanding lending UI’s (previous post), I present to you Zazma. The startup, which came out of stealth yesterday, has raised $10 million to finance small loans of $300 to $5,000 for up to 60 days. The initial funding came from Sequoia and Spark Capital.  

This is a business that almost no bank wants, which makes it ripe for startups. But it can be lucrative. Because the business borrowers are using the money to buy needed equipment or inventory, they are much less focused on the interest rate, if they believe the cash advanced will earn them a profit. It’s the secret sauce of successful startups Kabbage, Capital Access Network and On Deck Capital (note 1). 

As you can see from the screenshot below, the maximum loan, $5,000 for 60 days, earns Zazma a healthy $295 fee. Assuming it’s paid back, that a 6% return over two months or an annual APR of 36%. While that’s not enough of a return on VC funds, once the company has enough of a track record to attract debt funding, that could be a sustainable revenue model.

The company hopes to attract sellers who will offer Zazma-powered financing to their customers. That could be a real win-win. And because each transaction can potentially satisfy two businesses, it’s a model that bank’s should consider.  

The UI
While the business model is very promising, what I really love is their UI. Absolutely simple, with fewer words than Google’s famously simplistic design. Potential borrowers type the loan amount, choose the payback date and press the large, red Get Funded bar. The applet automatically shows the amount that must be repaid.

It’s a fantastic start to the borrowing experience, which I have not tested. Because this is business credit, they can avoid talking about the interest rate. But there is nothing hidden here. It is a model of simplicity and transparency. 


Zazma homepage (4 Sep 2013)


After clicking Get Funded, the box opens to ask for name, company and email



1. Follow these Finovate alums at our Finovate blog.
2. For more on small business services, including credit, see our Online Banking Report on micro and small businesses (subscription, published Oct 2009).

BBVA Compass Bundles Microbiz Checking with PAYware Mobile Card Processing

imageI rarely get a chance to write about checking accounts, so I was glad to see the BBVA Compass announcement on the wires yesterday.

The bank launched a Business Mobility Bundle which has checking, mobile card processing and a free Galaxy Tab 3 Android tablet (wifi-only), a $200 value (note 1). It’s a soft bundle (note 2) of the bank’s existing e-Business Checking Account and its Merchant Mobility Pack, powered by Verifone PAYware

imageThe checking account is fee-free up to a certain level of activity (note 3). But the optional card-acceptance piece is $24.95/mo, which is waived in this promo for 12 months. The offer is not currently visible on the bank’s website, but a link in the press release leads to a landing page with the offer (see first screenshot).

Myimage take: The Business Mobility positioning is excellent, nicely tying two key business products together. The underlying accounts seem to be solid values, and the free Samsung tablet is sure to spark sales. 

However, my initial enthusiasm from the press release was somewhat tempered by the realities of the fine print (see second screenshot, note 1) and overall execution. For example:

  • No online application, it’s a call-me form (albeit a good one)
  • Mobile deposit is limited to $1,200 every 30 days
  • Both the free e-Business Checking and the 12-month fee waiver for mobile card acceptance are currently available on the bank’s website. There are no added benefits to the Business Mobility Bundle, outside the tablet premium
  • The free tablet is wifi only and sells for $199 online (it’s no iPad)

The offer is not currently visible on the BBVA website, even through site search, presumably so it doesn’t irk existing customers who cannot get the free tablet.

Bottom line: I like the promotion, although I wish the bundle had more features. For example, mobile banking pre-loaded on the Galaxy; customer service available via Skype; or even higher mobile-deposit limits for those using card processing (note 4).


BBVA Business Mobility landing page (link, 30 July 2013)


Fine print (positioned directly below the screen shown above)



1. Fine print: (A) New small business customers only, 1 per household/biz; (B) Must perform 10 transactions, not including intrabank funds transfers, within 30 days of account opening; (C) $100 minimum opening deposit
2. I just made up that term, but what I mean is that the customer is not required to add the Merchant Mobility piece to qualify for the free Samsung tablet. The checking account alone earns the premium.
3. Transaction limits before fees kick in:
– 50 items processed
– 2 in-branch deposits
– 5 processed checks and/or in-branch withdrawals
– $5,000 cash processing
In addition, mobile deposit has stingy initial limits of $500 max per item and only $1,200 max every 30 days  
4. The landing page could use more powerful visuals showing the BBVA mobile app and/or PAYware dongle in use.

New Online Banking Report Published: Crowdfunding Small Businesses

clip_image002We believe crowdfunding has the potential to materially impact banking market share in the next 20 years. Tapping the massive capital and higher risk tolerances of institutional and individual investors, these platforms will provide funding to segments currently underserved by traditional lenders (e.g., small and micro businesses).

We’ve written extensively about the consumer debt-based crowdfunding, which we’ve called P2P, or peer-to-peer, lending (note 1). Now, we turn to the new crop of startups arranging funding for small businesses and startups.

The report covers the three variations that promise financial returns to investors (note 2): 

  • Debt-based financing (crowdlending)
  • Equity-based funding (crowdinvesting)
  • Receivables-based funding (crowdfactoring)

Sixteen crowdfunding platforms are profiled, eight in the United States and eight in the United Kingdom:


  • Abundance Generation
  • Bolstr
  • Funding Circle
  • Mosaic
  • RealtyMogul
  • Relendex
  • Sofi
  • SoMoLend
  • ThinCats


  • AngelList
  • CrowdCube
  • FundersClub
  • Seedrs


  • Market Invoice
  • P2Binvestor
  • PlanetBlack

Finally, we look at specific opportunities for retail banks to leverage the new technology.


About the report

Crowdfund Investing Platforms: Debt & Equity (link)
Payments in the smartphone era

Author: Andy Davis, U.K. Financial writer

Editor: Jim Bruene, Editor & Founder

Published: 21 Feb 2013

Length: 68 pages, 24,000 words, 5 tables

Cost: No extra charge to OBR subscribers, US$495 for others (here)


1. We have published three reports in this area (OBR 127 in 2006, 148/149 in 2007, and SR-5 in 2009). In addition, we’ve created a 10-year forecast for U.S. P2P lending in each of our last six year-end reports.
2. We do not cover the donation or rewards models, such as Kickstarter. While those are effective ways for businesses to raise money and/or visibility for new products, they have fewer parallels and opportunities for retail banks.